We all have a favorite stock … or two or three. I know I have a few favorites for my investing.
Perhaps you bought it 10 years ago and still have it. Or maybe you have bought and sold it three or four times as it dipped and climbed.
But can you win and record good gains just by buying your favorites? This is called emotional investing.
I originally bought Disney because my wife and I like to go to Disney World. So after our third visit I decided to buy some stock. Actually it turned out to be a good investment (luckily) as I recorded a 250% gain with my first purchase and when I re-purchased and sold, another 40% gain.
But I wondered…
What if I created a watch group of 20 favorite or interesting diverse stocks? I could then back-test them in my investment software with different types of analysis and see what type of results I got.
So I created Ray’s Watch list. You can see what I picked at the end of this writing. These are my choices; you would probably pick differently. In any case, I performed 10 extensive back-test optimizations. Some were based on just investing in only one stock at any given time while others were based on investing in three different stocks at the same time. In all cases I used my investment software’s Market Exit option to take me totally out of the market whenever the market started heading south. All my tests started with January 2005 and ended this January 8, 2016.
I am not a daily trader so all my trading strategies are based on end-of-the-week results. This way I only trade once a week at the most.
I ended up with thousands of results, but narrowed them down to 53 possible trading strategies. I carefully examined these 53 results and ended up with 5 potential trading strategies for each type: investing in one, or investing in three.
The results were pretty clear:
Investing in one stock at a time: results ranged from 880% > 3,086% total return or 23% > 37% compound annualized return.
Investing in three stocks at a time: results ranged from 383% >679% total return or 15% > 21% compound annualized return.
My personal conclusions:
I would have made even more money by shifting between the stocks in my watch group than sticking with one, even Disney. And I would have had the greatest gains by only investing in one stock at any given time.
The charts below show the results in greater detail.